Cus - Inclusion of software in value of hardware for payment of Customs duty – High Court reduces pre-deposit from total duty to 50% - When there were two divergent views of Tribunal, proper procedure is to refer matter to Larger Bench
By TIOL News Service
CHENNAI, APR 10, 2014: THE assessees are providers of mobile telecom services and they imported certain equipments and software for running such equipments. The equipments, which were imported by the assessees are classified into four categories viz.,(i) Mobile Switching Centre (MSC), (ii) Base Station Controller (BSC), (iii) Base Transceiver Station (BTS) and (iv) parts of the above equipment classifiable under Chapter Heading 85.25. The first three equipments needed software for its functioning and such software was preloaded in the equipment. The assessee also imported media said to contain such software, in some cases in the same consignment as the equipment and in some cases in separate consignments. The assessee did not furnish separate values for each equipment and each software. At the relevant point of time, the computer software was exempted from customs duty. Therefore, the assessee did not pay any customs duty on the value said to be that for the software and paid customs duty as applicable for the value declared to be that of the hardware. After the goods were cleared, the Revenue on intelligence obtained certain information stating that the equipment that had been cleared was actually pre-loaded with the software having nature of embedded software and the software imported separately was only for the purpose of declaring the value of the software. Therefore, the Revenue contended that the separate import of software is a dummy transaction and that the value of the equipment should have been assessed by including the value of software and duty on the combination of the software and hardware should have been paid at the rate applicable to hardware.
The appellants are before the High Court challenging the order of the Tribunal directing them to pre-deposit of entire customs duty.
The appellant contended that in respect of similar import in the case of Vodafone Essar Gujarat Ltd. vs. Commissioner of Customs - (2008-TIOL-2861-CESTAT-MUM) the Tribunal held that the contention of the Revenue that the value of the software should be clubbed with the value of the hardware and charged to duty at the rate applicable to hardware was not sustainable. However, the Bangalore Bench of the Tribunal in the case of Bharti Airtel Ltd., vs. Commissioner of Customs - (2012-TIOL-746-CESTAT-BANG) took a diametrically opposite view without referring the matter to a Larger Bench of the Tribunal. Therefore, it was contended on behalf of the assessees that the decision in the case of Bharti Airtel Ltd., was per incuriam inasmuch as it did not consider the decision of the Larger Bench of the Tribunal in the case of Digital Equipment (India) Ltd., vs. Collector of Central Excise 1997 (70) ECR 326 (Tri.LB).
After hearing the parties and perusing the materials placed on record, the High Court held:
The legal issue to be decided is as to whether the case of the assessee is one similar to the case of Bharti Airtel or that of Vodafone Essar Limited and whether the same has to be considered only at the time of final hearing of the appeal before the Tribunal. It is seen that there were two divergent views of the Tribunal in the case of Vodafone Essar Limited and in the case of Bharti Airtel and that the assessee has placed materials before the Tribunal to distinguish the decision in the case of Bharti Airtel on facts and with regard to the nature of software imported. If the Tribunal did not agree with the assessee and was inclined to refuse to follow the decision in Bharti Airtel the proper procedure for the Tribunal is to refer the matter to the Larger Bench.
As regards the nature of software, which was imported and to whether the assessee had disclosed the same, we do not propose to venture into this aspect at this stage. All that is required to be seen is as to whether the assessee has made out a prima facie case for grant of complete waiver. On examination of the facts placed before the Tribunal and before this Court, we do not think that the assessee has made out a case for complete waiver of the pre deposit and stay of the entire due. Nevertheless when there were two divergent views rendered by the Tribunal and the assessees had placed certain materials before the Tribunal to distinguish their case from that of the case of Bharti Airtel and supported by the decision of the Co-ordinate Bench of the Tribunal in the case of Vodafone Essar, we are of the view that the assessee has made out a prima facie for atleast partial waiver of the pre-deposit.
Accordingly, the High Court directed the assessees to pay 50% of the demand of duty made, in each case.
(See 2014-TIOL-461-HC-MAD-CUS)
